Charge It! But Watch The Rewards

When I was in the 6th grade, Mrs. Nygren (my teacher, may she rest in peace) used to admonish the class that no one should ever buy anything on credit except for a house. She was adamant. If we could not pay with cash, we should not buy what we wanted to buy. Cars, boats and other big ticket items were intended only for those of us who could deliver cash in full.

Even as a 12 year old 6th grade student, I could not agree with Mrs. Nygren. She was opinionated. I was more opinionated. I vividly recall arguments in class — they were not organized enough to be characterized as debates — about the value of building up good credit by taking on reasonable debt. My father had always told me that I would start building my credit rating by opening and maintaining a bank account, which I had done by the time I was 9 years old and that I would really improve it by taking out a car loan and making the payments when I was 16.

If I listened to Mrs. Nygren, I would have to accept that my father was wrong. That was not going to happen and, to this day, I still believe that a bit of debt is a good thing.

Since I am a believer in the value of building a good credit rating, I have several credit cards. All of them offer me incentives and my favorites are, by far, one card that pays 1% of my purchases into a college account and another card that pays me 3% on certain on-line purchases.

I almost never buy anything with cash, but I never carry a balance on my credit cards. Each month, I enjoy watching my benefits accrue and seeing my college account get fatter. My wife also shares my view and has religiously used a hotel incentive card for her purchases over the past decade. At this point, if we were to cash in our hotel rewards, we could stay in a luxury hotel in Hawaii for a month (which makes me feel that I really need to get an airline reward card soon).

But this is not actually about the value of affinity credit cards. It is about managing your use of those cards so that you do not lose out on the incentives that they offer.

In August, I received my credit card statement and noticed that the incentive payment that should have been deposited into my college account was a couple of dollars short. I should have called to find out why there was an underpayment, but I was lazy and let it go. In September, my wife paid my credit card bill and I completely forgot to check on the incentive payment.

Then the October bill came around and I quickly noted that I had not received any incentive payment at all. I checked my on-line account statement and soon realized that I had not been paid anything for September, either.

I called my credit card company and learned that my incentive payments had a cap that I had reached in August. For two months, I had been using my primary card for no reason. I felt like a fool because if I had moved to my secondary card (the on-line purchase card), I would have received about $75 in additional incentives.

My failure to track my credit card incentive programs had cost me $75 this year and I have to wonder how much it has cost me in the past. Now I know that there are limits to what credit cards will pay me as an incentive to use the cards. I have also done some additional research and learned that credit card companies are also able to change the incentives that they offer by giving notice to the card holders (at least when the card is a no-fee card, as are all of mine).

I will never again allow my cards to stop paying me an incentive payment because I will now always track how close I am to the incentive limits that the cards offer, and I shall pay a bit more attention to the mailings that I receive from my credit card companies.

Have you ever found that a credit card did not give you the incentive that you expected to receive? What do you think about using credit cards? Do you agree with Mrs. Nygren, my 6th grade teacher, who tried to instill in my class a disdain for credit? Or do you agree with my Dad, who feels that a little bit of debt, well managed, is a good thing?

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7 Responses to Charge It! But Watch The Rewards

  1. Ann says:

    I have one credit card ’cause it generates a “virtual” account number when I purchase something on-line. (Yes, I realize that https sites are supposed to be safe, but…) It gets paid in full each month.

    I did so much traveling when I was in corporate, that it doesn’t appeal to me much these days and I don’t have kids’ college to worry about.

    I paid cash for my most recent car and paid off my mortgage(s) as soon as I could. There’s a lot of freedom in being debt free.

    That being said, a small loan that gets paid on time (or even better, early) to get credit established is fine. Too many people, however, don’t just use them like that. And even more young people don’t realize the cost of NOT paying off your card each month!

    Too many people use credit cards for instant gratification, rather than wisely as you do, David. That’s why so many are in so much trouble now.

  2. Bill M says:

    I have 3 credit cards that I use for all my purchasing.

    1. I get 3% back at groceries/restaurants
    2. I get 5% back at gas/any thing auto related and cell phone bill
    2. I get 2% back at everything else that gets deposited into a brokerage account which gets invested in a balanced mutual fund.

  3. Ann says:

    Hmmmm. I like that brokerage acount idea. Maybe I’ll start opening some of those offers I get rather than shredding them all!

  4. Shahrul Azwad says:

    I still believe that rewards still don’t justify credit card use. Cash is still king!

  5. Cindy M says:

    I have several credit cards I keep but rarely use and have always paid them off immediately when I do use them. I have come to the conclusion that the “rewards” stuff is not all that useful/ interesting to me in my lifestyle now and frankly leads me right back down the old garden path to want things I nearly always find out in the end aren’t that rewarding. Now granted, a trip to Hawaii would be fabulous but not much chance I’m personally gonna accumulate that kind of pointage, haha. I accummulated maybe 15,000 points and took my mom out to eat for free recently, but we frankly were not that impressed with the meal. Grateful, yes, but not impressed; free is free, after all. We’re both good cooks with full freezers and like our own cookin’, so there you go.

  6. Persephone says:

    My favorite reward card is my LUXE card from Banana Republic. With it I get free shipping on any item (no matter how litttle the cost) from Banana Republic, Gap, Old Navy and Piper Lime. I’ve had it for years and have saved hundreds in shipping costs over the years.

  7. PeteTheJanitor says:

    The fact that you are delaying the actual payment of your purchases for 30-60 days is another great thing. If you spend $1000 on credit cards each month (instead of cash or check) you will always have at minimum an extra $1000 in your checking account. My checking account earns 3.5% APR so this is a good thing.

    Using $1000 per month as an example, if you have a normal discover card this you would earn a minimum of $120 in a year from cash back rewards. In addition if you have a high interest savings or checking you’ll earn $35 in extra interest. That’s ~$155 in a year for doing nothing, all while building your credit. Put that extra money towards your high interest debt (car loans…etc) and you’ll see the snowball start to roll.

    If you have the discipline to not buy what you can’t afford, owning a credit card is a no-brainer.

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